Post by thebastidge on Sept 27, 2016 18:00:56 GMT
I think this is a viable business model for the homestead level of Sea-borne residence/village. It's a good way of raising a modest amount of investment capital for a small business, keeping skin in the game for everyone, and organizing a group effort that is aimed at a particular goal rather than simple profit as the only goal.
Worker Cooperatives
Cooperatives are a type of company in which control is on a one person/one vote basis. Cooperatives can be set up as partnerships or corporations, and in some states, there are worker cooperative statutes. Whatever form a cooperative takes (most are set up as corporations), they qualify for special federal tax benefits. Cooperatives are the oldest form of employee ownership in the United States, dating from the early 1800s. Although they are not common in larger businesses, they make up a large portion of small employee-owned businesses. In the United States, a commonly accepted metric defining “small business” is less than 500 employees and/or 25 million dollars per year in revenue.
Formal voting control must be on a one-person/one-vote basis. Usually most employees must be shareholders, although as many as half can sometimes be excluded. Cooperative businesses are owned and controlled by members, not by absentee investors. The board of directors is elected from the cooperative’s membership to represent the interests of the members. The members are the users or consumers of the cooperative’s products or services. Unlike business ownership, which is based on the percentage of the business a person owns, cooperative ownership is based on how much of the products or services the member purchases. Members vote on all activities of the cooperative business. Cooperatives allot one vote to each member. A corporation allots one vote for each share, which means an investor may purchase many shares to gain many votes. Cooperative members may purchase one share of voting stock. Membership requires the voting stock and engaging in business with the cooperative.(1) Generally, a cooperative cannot pay dividends, and must pay out any excess earnings not held in the company to employee shareholders based on salary, time worked, or some other work-related basis. Owner/workers usually invest with a buy-in amount of money when they begin working. At the end of each year, worker-owners are paid a portion of the money the business makes after expenses. In conventional businesses this money is called profit, in co-ops it is called surplus, and it can be distributed based on hours worked, seniority, or other criteria.(4)
Persons who sell shares to a worker cooperative are exempt from capital gains taxes if the gain is reinvested in U.S. securities. Cooperatives are exempt from double taxation on dividends to employees that are based on time worked or salary rather than equity. Most small businesses will not need to pay out dividends anyway (see discussion in Financial Benefits in a Corporation), but this exemption gives cooperatives more flexible tax planning options than other corporations, letting them treat profits like either an "S" or a "C" corporation without changing their legal structure.
Set-up costs for cooperatives are even cheaper than direct ownership plans for two reasons: worker cooperative laws in many states make it simple to incorporate and qualify as a cooperative; and, there are professionals and organizations offering inexpensive services or financial support for cooperatives.
Typically, a worker cooperative makes employees owners after a probation period. Employees then either buy shares of stock that have real equity value that fluctuates with the company's value or they purchase a membership share, which has a fixed value that may or may not have interest added on to it as the employee accumulates seniority. When an employee leaves, either the cooperative or another employee buys the share (if it is real equity), or (if it is a membership share), the cooperative pays off the employee and a new employee buys a share at the base price.
Most cooperatives establish an internal account to which profits are allocated, usually to all cooperative members based on hours worked or some other equitable measurement of their contribution. These profits are deductible to the company, but taxable to the employee. When employees leave, they are paid out their account balances, usually with interest. In the interim, cooperatives may also pass some of the profits directly through to members, perhaps to help them pay taxes they owe on the profits allocated to their accounts.
What kind of businesses are worker co-ops?(4)
Any business can be a worker-owned and -controlled business.
Worker co-ops have been successful in many different sectors and
industries. Some examples are:
Forming a Cooperative(2)
Forming a cooperative is different from forming any other business entity. To start up, a group of potential members must agree on a common need and a strategy on how to meet that need. An organizing committee then conducts exploratory meetings, surveys, and cost and feasibility analyses before every member agrees with the business plan. Not all cooperatives are incorporated, though many choose to do so. If you decide to incorporate your cooperative, you must complete the following steps:
Disadvantages
More resources:
community-wealth.org/content/worker-cooperatives
www.techworker.coop/resources/technology-freelancers-guide-starting-worker-cooperative
www.uwcc.wisc.edu/pdf/In%20Good%20Company%20a%20Guide%20to%20Cooperative%20Employee%20Ownership.pdf
community-wealth.org/content/worker-cooperatives-models-best-practices
community-wealth.org/content/democracy-work-institute-resource-library
Worker Cooperatives
Cooperatives are a type of company in which control is on a one person/one vote basis. Cooperatives can be set up as partnerships or corporations, and in some states, there are worker cooperative statutes. Whatever form a cooperative takes (most are set up as corporations), they qualify for special federal tax benefits. Cooperatives are the oldest form of employee ownership in the United States, dating from the early 1800s. Although they are not common in larger businesses, they make up a large portion of small employee-owned businesses. In the United States, a commonly accepted metric defining “small business” is less than 500 employees and/or 25 million dollars per year in revenue.
Formal voting control must be on a one-person/one-vote basis. Usually most employees must be shareholders, although as many as half can sometimes be excluded. Cooperative businesses are owned and controlled by members, not by absentee investors. The board of directors is elected from the cooperative’s membership to represent the interests of the members. The members are the users or consumers of the cooperative’s products or services. Unlike business ownership, which is based on the percentage of the business a person owns, cooperative ownership is based on how much of the products or services the member purchases. Members vote on all activities of the cooperative business. Cooperatives allot one vote to each member. A corporation allots one vote for each share, which means an investor may purchase many shares to gain many votes. Cooperative members may purchase one share of voting stock. Membership requires the voting stock and engaging in business with the cooperative.(1) Generally, a cooperative cannot pay dividends, and must pay out any excess earnings not held in the company to employee shareholders based on salary, time worked, or some other work-related basis. Owner/workers usually invest with a buy-in amount of money when they begin working. At the end of each year, worker-owners are paid a portion of the money the business makes after expenses. In conventional businesses this money is called profit, in co-ops it is called surplus, and it can be distributed based on hours worked, seniority, or other criteria.(4)
Persons who sell shares to a worker cooperative are exempt from capital gains taxes if the gain is reinvested in U.S. securities. Cooperatives are exempt from double taxation on dividends to employees that are based on time worked or salary rather than equity. Most small businesses will not need to pay out dividends anyway (see discussion in Financial Benefits in a Corporation), but this exemption gives cooperatives more flexible tax planning options than other corporations, letting them treat profits like either an "S" or a "C" corporation without changing their legal structure.
Set-up costs for cooperatives are even cheaper than direct ownership plans for two reasons: worker cooperative laws in many states make it simple to incorporate and qualify as a cooperative; and, there are professionals and organizations offering inexpensive services or financial support for cooperatives.
Typically, a worker cooperative makes employees owners after a probation period. Employees then either buy shares of stock that have real equity value that fluctuates with the company's value or they purchase a membership share, which has a fixed value that may or may not have interest added on to it as the employee accumulates seniority. When an employee leaves, either the cooperative or another employee buys the share (if it is real equity), or (if it is a membership share), the cooperative pays off the employee and a new employee buys a share at the base price.
Most cooperatives establish an internal account to which profits are allocated, usually to all cooperative members based on hours worked or some other equitable measurement of their contribution. These profits are deductible to the company, but taxable to the employee. When employees leave, they are paid out their account balances, usually with interest. In the interim, cooperatives may also pass some of the profits directly through to members, perhaps to help them pay taxes they owe on the profits allocated to their accounts.
What kind of businesses are worker co-ops?(4)
Any business can be a worker-owned and -controlled business.
Worker co-ops have been successful in many different sectors and
industries. Some examples are:
- Service - housecleaning, day labor, restaurants, taxis, childcare
- Retail - grocery stores, bakeries, bookstores, bike shops
- Health care - nursing, home health care, clinics, bodywork
- Skilled trades - printing, plumbing, woodworking, contracting
- Manufacturing and engineering - machine parts, fabricating
- Technology - web hosting, networking, voice and data systems
- Education - charter schools, teacher/student/parent-run schools
- Media and the arts - designers, galleries, performers, publisher
- Bio-fuels producers
Forming a Cooperative(2)
Forming a cooperative is different from forming any other business entity. To start up, a group of potential members must agree on a common need and a strategy on how to meet that need. An organizing committee then conducts exploratory meetings, surveys, and cost and feasibility analyses before every member agrees with the business plan. Not all cooperatives are incorporated, though many choose to do so. If you decide to incorporate your cooperative, you must complete the following steps:
- File Articles of Incorporation. The articles of incorporation legitimizes your cooperative and includes information like the name of the cooperative, business location, purpose, duration of existence, and names of the incorporators, and capital structure. Once the charter members (also known as the incorporators) file with your state business entity registration office and the articles are approved, you should create bylaws for your cooperative.
- Create Bylaws. While the law does not require bylaws, they do need to comply with state law and are essential to the success of your cooperative. Bylaws list membership requirements, duties, responsibilities and other operational procedures that allow your cooperative to run smoothly. According to most state laws, the majority of your members must adopt articles of incorporation and bylaws. Consult an attorney to verify that your bylaws comply with state laws.
- Create a Membership Application. To recruit members and legally verify that they are part of the cooperative, you must create and issue a membership application. Membership applications include names, signatures from the board of directors and member rights and benefits.
- Conduct a Charter Member Meeting and Elect Directors. During this meeting, charter members discuss and amend the proposed bylaws. By the end of the meeting, all of the charter members should vote to adopt the bylaws. If the board of directors were not named in the articles of incorporation, you must designate them during the charter meeting.
- Obtain Licenses and Permits. You must obtain relevant business licenses and permits. Regulations vary by industry, state and locality. Use our Licensing & Permits tool to find a list of federal, state and local permits, licenses and registrations you'll need to run a business.
- Hiring Employees.
- Less Taxation. Similar to an LLC, cooperatives that are incorporated normally are not taxed on surplus earnings (or patronage dividends) refunded to members. Therefore, members of a cooperative are only taxed once on their income from the cooperative and not on both the individual and the cooperative level.
- Funding Opportunities. Depending on the type of cooperative you own or participate in, there are a variety of government-sponsored grant programs to help you start. For example, the USDA Rural Development program offers grants to those establishing and operating new and existing rural development cooperatives.
- Reduce Costs and Improve Products and Services. By leveraging their size, cooperatives can more easily obtain discounts on supplies and other materials and services. Suppliers are more likely to give better products and services because they are working with a customer of more substantial size. Consequently, the members of the cooperative can focus on improving products and services.
- Perpetual Existence. A cooperative structure brings less disruption and more continuity to the business. Unlike other business structures, members in a cooperative can routinely join or leave the business without causing dissolution.
- Democratic Organization. Democracy is a defining element of cooperatives. The democratic structure of a cooperative ensures that it serves its members' needs. The amount of a member's monetary investment in the cooperative does not affect the weight of each vote, so no member-owner can dominate the decision-making process. The "one member-one vote" philosophy particularly appeals to smaller investors because they have as much say in the organization as does a larger investor.
- The cooperative business is formed and operated to meet the needs of its members.
- Cooperatives leverage the buying power of membership to purchase products or services. Members of cooperative businesses pay lower or stabilized prices for products and services because of the buying power of the cooperative.(1)
- Cooperative businesses have lower failure rates than traditional corporations and small businesses, after the first year of startup, and after 5 years in business. About 10% of cooperatives fail after the first year while 60-80% of traditional businesses fail after the first year. After 5 years, 90% of cooperatives are still in business, while only 3 - 5% of traditional businesses are still operating after 5 years.(3)
- Cooperative business members also benefit from shared ownership, which results in shared risk, both liability and financial
Disadvantages
- Obtaining Capital through Investors. Cooperatives may suffer from slower cash flow since a member's incentive to contribute depends on how much they use the cooperative's services and products. While the "one member-one vote" philosophy is appealing to small investors, larger investors may choose to invest their money elsewhere because a larger share investment in the cooperative does not translate to greater decision-making power.
- Lack of Membership and Participation. If members do not fully participate and perform their duties, whether it be voting or carrying out daily operations, then the business cannot operate at full capacity. If a lack of participation becomes an ongoing issue for a cooperative, it could risk losing members.
More resources:
community-wealth.org/content/worker-cooperatives
www.techworker.coop/resources/technology-freelancers-guide-starting-worker-cooperative
www.uwcc.wisc.edu/pdf/In%20Good%20Company%20a%20Guide%20to%20Cooperative%20Employee%20Ownership.pdf
community-wealth.org/content/worker-cooperatives-models-best-practices
community-wealth.org/content/democracy-work-institute-resource-library